The brokerage business is getting tougher on Wall Street. Declining fees make small accounts less profitable, and the government’s “do not call” list hampers phone sales. Brokers are leaving big firms to join or start smaller money management businesses, known as registered investment advisers, that charge fees and don’t take commissions on trades. Competition from discounters such as Charles Schwab (SCHW) has eaten into the market share of the four biggest brokers—Merrill Lynch (BAC), Morgan Stanley (MS), Wells Fargo (WFC), and UBS (UBS).
Then there’s Edward Jones, a 91-year-old brokerage based in St. Louis that’s thriving by sticking to its old ways. It hired 2,682 trainees last year and plans to add a similar number this year, according to Steve Kuehl, a partner. Trainees at Edward Jones, which has more than 12,000 advisers, don’t spend their days pitching stocks to strangers over the phone. They go door to door, like vacuum cleaner salesmen. New brokers are brought to headquarters, where the company has constructed what it calls “role-play suites”—rooms designed to look like homes and offices, complete with doors that they can practice knocking on. They review tapes of themselves with coaches to improve their technique. “We try to help them learn how to present their value proposition in terms of helping people meet their financial goals,” says Kuehl. “The core is face to face.”
The life of a young broker can be grueling. After the role-playing at headquarters, Edward Jones brokers return to their hometowns, where they go from one house to the next to compile a list of prospects. After Alex Freemon, a 2012 Georgia Institute of Technology graduate, practiced knocking on a model door in a classroom at Edward Jones headquarters, the company sent him back to Atlanta to walk the streets for 10 hours a day. His pay: about $30,000 a year plus commissions.
Freemon quit his job in March after realizing he would have to spend five years struggling to meet sales goals before he could focus on helping clients devise financial plans. “Until you actually go out and hit the pavement, it doesn’t really sink in,” says Freemon, who now works as a business analyst at a software company in Atlanta. “It’s not impossible, but it’s definitely not sustainable if you have a family or anything to do besides knocking on doors.”
Some people enjoy the challenge. “I like getting out and meeting people face to face—it’s refreshing compared to talking on the phone all day,” says Matthew Joswick, an Edward Jones broker in Honolulu who started last year. “You’re going to hear 100 no’s before you hear one yes. If you don’t have thick skin, forget about it.”
As daunting as it is, the training program has allowed Edward Jones to keep its sales force about the same size, even as more than 10 percent of its brokers have left each year since 2007, according to the company’s regulatory filings. And old-fashioned salesmanship has been working well for Edward Jones’s bottom line. Net revenue for Jones Financial, the brokerage’s closely held parent, increased to a record $5.03 billion last year and has climbed 42 percent since 2009, vastly outpacing Merrill Lynch’s 10 percent growth in the period, filings show.
At the Wall Street brokerages, pure selling ability is less important than experience because brokers now spend the majority of their time helping clients with retirement and estate planning rather than pitching stocks, according to David McWilliams, an executive at UBS who helps manage its training program. The Swiss bank this year will place almost half of its 200 trainees in salaried positions as assistants to established brokers rather than starting them as commissioned salesmen, he says. It was different when McWilliams started out as a 21-year-old broker in 1978. “We were viewed back then as having a lot of information that no one else had,” he says. “You couldn’t get a stock quote without calling us.”
Morgan Stanley, which has 16,000 brokers, more than any other firm, last year reduced its trainee class to 1,250 from 2,000 to reduce costs, Chief Financial Officer Ruth Porat said on a conference call in July. Bank of America (BAC) plans to hire at least 1,200 trainees this year at its Merrill Lynch brokerage unit, which has the second-most advisers, down from 2,500 in 2012, according to Susan McCabe, a spokeswoman who says the fluctuation is normal. With fewer young people entering the business, the average age of brokers—now frequently called advisers—was 53 at the biggest firms last year, up from 48 in 2009, according to Sean Daly, an analyst at research firm Cerulli Associates.
Rather than hire new recruits, many brokerages pay millions of dollars in bonuses to lure experienced advisers, according to Howard Diamond, a recruiter in Chester, N.J. “It’s an eat-what-you-kill kind of industry, and unless you can hit the ground running, the firms are just not that interested in you,” he says.